After years of welcoming immigrants to tackle labour shortages and boost economic growth, Canada is shifting gears.

On October 24, Prime Minister Justin Trudeau’s government announced plans to cut immigration, citing the strain on housing, jobs, and public services.

This marks a significant policy reversal from a country known for embracing newcomers as essential contributors to its economy.

Canada’s immigration turnaround: What prompted the change?

Canada has seen rapid population growth, fueled by record immigration levels. The influx is comparable to adding an entire city the size of San Diego to Canada’s population every year.

With a population of just 40 million, this surge has stressed infrastructure, inflated housing prices, and pushed up the unemployment rate.

The strain on resources has led to shifting public opinion.

A recent survey by the Environics Institute revealed that nearly 60% of Canadians now believe immigration levels are too high—an increase from just 27% in 2022.

This shift in sentiment has fueled pressure on Trudeau’s government to act, especially as the opposition Conservative Party gains ground ahead of the 2025 elections.

A shift from past immigration policies

Historically, Canada’s immigration policies have been well-regulated and positively viewed.

Canada shares only one border with the US, and the government set annual immigration targets to ensure smooth population growth.

However, the post-pandemic influx—driven by relaxed travel restrictions and labor shortages—exceeded expectations, revealing cracks in the system.

While the surge helped several sectors recover, such as housing, retail, and telecommunications, the rapid pace soon outstripped the country’s capacity to absorb new residents.

This has caused GDP per capita, a key indicator of living standards, to decline for consecutive quarters. Younger adults and recent immigrants, crucial to the labor market, are feeling the pinch the most.

Breaking down the immigration system

Canada’s immigration system is essentially divided into two pools.

1. Permanent residents: These immigrants are selected through a points-based system that assesses factors such as education, language skills, and work experience. This pool has traditionally served as the main source of new citizens and economic migrants.
2. Temporary residents: This pool includes international students, foreign workers, and asylum seekers. Although these groups used to contribute minimally to population growth, recent policies allowing easier access to work visas have led to a surge in their numbers.

Temporary residents often aim to transition into permanent residency, using their work or study experience in Canada to gain an advantage in the application process.

However, the sudden growth of this group has added pressure on the housing market and public services.

Trudeau’s plan to reduce immigration

To address the challenges posed by high immigration, the government has announced tighter restrictions on both permanent and temporary residents.

• Canada will reduce the number of new permanent residents to 395,000 in 2025, down from 485,000 in 2023.
• The government will also introduce a first-ever cap on temporary residents, aiming to cut their numbers by 20% over the next three years.
• The cap includes limits on student visas and restrictions on foreign labor, a move designed to ease pressure on housing and public services.

By 2027, Canada expects modest population growth of just 0.8%—a stark contrast to the 3% annual growth seen in recent years.

Economic implications of cutting immigration

While the new immigration policy is aimed at stabilizing the job and housing markets, it comes with economic risks.

Immigration accounts for almost all labour force growth in Canada, and a slowdown in new arrivals could hurt long-term economic performance.

Canada has relied on immigration to fuel consumer spending, which played a key role in avoiding recession during the Bank of Canada’s aggressive interest rate hikes.

A reduction in immigration could reduce the labour supply, hampering economic growth and even reigniting inflation as companies struggle to fill vacancies.

Balancing public sentiment and economic needs

The government’s decision to reduce immigration targets is partly driven by growing public discontent, but it risks complicating future economic stability.

Immigration has been instrumental in sustaining Canada’s labour force, and any significant decline could reduce productivity and growth.

Immigration Minister Marc Miller acknowledged the need for a balanced approach.

While we need to manage the flow of newcomers, immigration remains a vital part of our long-term economic strategy.

What lies ahead for Canada’s immigration policies?

The new immigration policy reflects a cautious approach to managing population growth, balancing public sentiment with economic needs. However, analysts warn that the changes could have unintended consequences.

A slowdown in labour force growth could hurt sectors such as healthcare, construction, and technology, all of which rely heavily on skilled immigrants.

Additionally, lower immigration rates may lead to reduced consumer spending, potentially slowing down economic recovery.

While Trudeau’s government aims to address immediate challenges, the long-term impact on Canada’s economy remains uncertain.

Whether the country can strike the right balance between population control and economic growth will determine the success of these new policies.

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China’s central bank, the People’s Bank of China (PBOC), has announced the expansion of its monetary policy tools by introducing an outright reverse repurchase agreements (repos) facility.

This monthly tool will allow banks and non-bank institutions to borrow against sovereign, local government, and corporate bonds, with agreements set to last for no more than a year.

The introduction of outright reverse repurchase agreements (repos) with primary dealers marks the latest effort by the central bank to fine-tune its influence over market borrowing costs and inject stability into China’s banking sector.

The facility starts on Monday.

The PBOC’s goal is to ensure a reasonable level of liquidity in the financial system, helping to cushion against seasonal spikes in cash demand, especially as the year-end approaches.

Easing liquidity pressure amid bond issuance surge

China is expected to ramp up government bond issuance to finance additional spending and refinance local government debt, raising concerns about potential liquidity pressures in the interbank market.

The new tool, which allows for longer-term liquidity injections, is well-timed to help absorb the market impact of this expected surge in bond supply.

“Outright repo has an underlying exchange of bonds, allowing banks to free up longer-term liquidity,” Becky Liu, head of China macro strategy at Standard Chartered Bank said in a Bloomberg report.

This will help the PBOC prepare banks for an anticipated rise in government bond issuance.

As commercial banks are the primary buyers of these bonds, the outright reverse repo tool will help ensure sufficient liquidity, even as more bonds are sold to finance stimulus measures.

Market observers see this development as part of the PBOC’s broader shift toward a more sophisticated and market-driven monetary policy framework.

China’s benchmark yields showed little reaction to the news, though the offshore yuan weakened slightly against the dollar.

Outright reverse repo: aligning with global central banks

The introduction of outright reverse repos is part of a broader revamp of the PBOC’s approach to managing liquidity.

The central bank has been moving away from relying on the medium-term lending facility (MLF) as a primary rate-setting tool, instead favoring shorter-term instruments like the seven-day reverse repo to provide clearer signals to the market.

This shift positions the PBOC closer to the practices of its global counterparts, enabling more precise control over market borrowing costs and liquidity conditions.

The new outright repo tool is expected to sit somewhere between the shorter-term seven-day reverse repo and the longer-term MLF, offering a medium-term liquidity solution.

By offering 3- to 6-month outright repo agreements, the PBOC aims to provide more flexibility in its operations while alleviating funding stress in the banking sector, which faces significant MLF maturities in the final months of 2024.

According to Bloomberg, China has about 1.45 trillion yuan ($204 billion) of MLF loans maturing in November and December, making the timing of this tool critical for market stability.

New tool to help banks manage cash needs

China’s financial institutions are preparing for what could be a particularly tight year-end, with seasonal cash demand likely to rise.

In addition, uncertainty remains over the potential for further fiscal stimulus, which may come in the form of additional government borrowing and bond issuance.

Ensuring adequate liquidity in the market is essential to maintaining economic momentum, particularly as China continues to struggle with weak domestic demand and an ongoing property sector crisis.

Policymakers have already introduced a broad stimulus package, including cuts to interest rates and reductions in banks’ reserve requirements.

These measures aim to support a recovery in economic activity, but liquidity constraints remain a concern.

Money market indicators have been flashing warning signs that some institutions are already underfunding stress.

The new repo tool is expected to ease this pressure by ensuring that banks can access liquidity to meet their needs while freeing up cash for bond purchases.

While the outright reverse repo tool will likely reduce the pressure on banks, its introduction could also signal a lower likelihood of further cuts to the reserve requirement ratio (RRR) in the near term.

Frances Cheung, a strategist at Oversea-Chinese Banking Corp, noted that the flexibility provided by outright reverse repos makes it less necessary for the PBOC to rely on other policy tools, such as RRR cuts, to manage liquidity.

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Gold prices were under pressure on Monday as the dollar and US Treasury yields rose, denting demand for the precious metal. 

Easing concerns over a bigger conflict in the Middle East also dampened safe-haven demand for the yellow metal on Monday. 

At the time of writing, the December gold contract on COMEX was at $2,744 per ounce, down 0.4% from the previous close. 

Even as gold prices were in the red, experts believe that the bullishness remains intact for the precious metals. Gold has risen more than 30% since the start of the year. 

Tensions ease after Israeli strikes

Geopolitical tensions eased after Israel attacked Iran over the weekend. 

Israel did not target Tehran’s oil and nuclear facilities, which would have escalated the conflict in a bigger way. 

Missiles were fired in three waves before dawn on Saturday against missile factories and other sites near Tehran and western Iran. 

Iran threatened to retaliate, but the country reportedly downplayed the impact of Israeli strikes. The prospect of Israel hitting oil and nuclear facilities in Iran had built up safe-haven demand for gold over the last few weeks. 

However, Israel’s attack did not affect any nuclear sites or disrupt energy supplies from Iran, dragging down sentiments in the gold market. 

Downside limited in gold 

Even though gold prices have edged lower on Monday, experts are confident about the yellow metal’s potential for further gains. 

Prices have fallen slightly from their record high of $2,772.60 per ounce touched earlier this month. 

“However, the downside of the precious metal might be limited amid the ongoing geopolitical tensions and uncertainties surrounding the US presidential election,” Fxstreet.com said in a report. 

Meanwhile, the purchase of gold by global central banks has supported the yellow metal over the last two years. 

Analysts with Fxstreet believe that gold prices could correct somewhat to $2,670-$2,700 per ounce level in the upcoming week. 

Alexander Kuptsikevich, analyst at FxPro Financial Services Limited, said in a report:

This won’t break the strong bullish trend. But a decisive break below will make us cautious in anticipation of a deeper pullback.

Potential in palladium’s rally

Palladium was the best-performing asset class among all the precious metals last week. 

The rise in prices was fueled by the US’ call on G7 countries to impose sanctions on the Russian palladium supply. Russia supplies about 40% of the world’s palladium. 

At the start of last month, palladium broke above its 50-day and then its 200-day moving averages within days of each other. In October, the approach to these levels provided support for buyers, according to Fxstreet. 

Kuptsikevich said in the report:

Given palladium’s low liquidity compared to gold and even silver, strong price movements cannot be ruled out. From current levels near $1170, the next and easy target to the upside is $1200, the peak at the end of last year.

The 200-day moving average lies at $1,700 per ounce, breaking which would propel prices to even further heights. 

This could also mean a repeat of the explosive rally from late 2018 to March 2020, Kuptsikevich said. 

At the time of writing, palladium futures on the New York Mercantile Exchange were around $1,200 per ounce, rising 9% since the beginning of last week. 

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